Your Money: Your money in the age of uncertainty

By Medicine Hat News Opinion on April 18, 2020.

After a decade of steady growth, the financial forecast shows signs of turbulence ahead. How will you avoid knee-jerk reactions when your wealth plan gets rattled?

If you also feel like panicking about the current events, you have a wide variety of things to choose from these days.

The global economic climate is in the eye of a hurricane due to COVID-19 virus and oil price conflicts. Nobody knows what’s around the corner, but if you’re already feeling unnerved, it can only be more bad news.

Anxious times can lead to uncertainty over your money, second-guessing your future plans and wondering where you’re going to be down the line. This could be when the ‘what ifs’ arrive: What if you can’t retire when you want to? What if the economy tanks and your savings cave in? What if you lose your job or get sick, and you are forced to sell your home? What if you run out of savings at 85?

If you’ve got a bad case of the ‘what ifs’, that’s understandable. But it may also be counterproductive. Making a rash decision in the emotion of seeing a portion of your recent gains disappear may lead you to a course of action you could come to regret. Before you take action, here are some points you may want to consider.

Firstly, create a financial plan. While no one has a crystal ball, a Certified Financial Planner (CFP) can help build wealth strategies that aim to protect against bad times as far as possible. A crashing stock market and downturns in the economy may be unwelcome and can panic those who have never experienced anything like it before, cashing out during volatile times may cause you to miss a market recovery. Stocks and mutual funds don’t grow in straight predictable patterns. If you review the major market indexes after the pullback in 2001 and 2008, the market has always recovered. In the same way Canadians can be sure there will be a nasty snowstorm every winter, no one can truly predict what day it will come nor how much shovelling we’ll be doing. Same for the stock market. There will always be a downturn, sometimes severe, but no one knows the date. Yet the market rebound that follows may push it to new heights.

My best recommendation is that if you are worried throughout this period, contact your CFP advisor and confirm your plan is still on track and protected for the long term. 

Secondly, a good plan offers perspective. If you have been used to steady growth in your wealth plans for a decade, losing a portion over two months can be plainly shocking. But be careful as this could be a critically dangerous time to make a move. For example, if you have 30 per cent of your portfolio invested in equities, you may feel highly motivated by a sharp loss to sell and transfer the funds into seemingly safer type of investments, like cash or GICs.

This kind of move can make the problem worse because, while someone may have suffered a loss on paper, selling can crystallize that loss thereby eliminating an opportunity for the investment to rebound. Moreover, once a growth cycle starts again, leaving money in cash means that an investor can’t take advantage of the market recovery. If you’re not in the market and if it takes off again, you could miss that growth and your portfolio will be forever changed.

For example, if investors are years away from retirement, the typical advice is around understanding that the market has gone down but you likely do not need access to those retirement savings right now. Time can help investments rebound from their lows before most investors need the money. For investors who are retired, if they have a solid wealth plan, should have one to two years’ worth of living expenses in cash or low-risk investments, which will likely not be impacted by a market downturn. Therefore, any growth investments can have time to recover.

Perspective is critically important, because people often fail to recall the times when they were enjoying above-average growth, thinking any recent good times were the norm. A great reminder to investors is what should go into making a wealth plan in the first place: a plan with a personalized standpoint, one that needs to evolve as people do and one that is based on reality, not rose-coloured glasses.

Your Certified Financial Planner (CFP) has an invaluable role to play. Keeping your investment strategy consistent with your personal financial goals is vital. And your financial planner can help you do just that. For a further discussion around your personalized retirement plans or analyzing your overall investment planning strategies, please contact me, Neil Mardian, CFP, FSCI, CIM, M.Sc. (Mgmt) (403) 504- 3026 (neil.mardian@td.com).

Remember, “People don’t plan to FAIL, they just fail to PLAN.” For Your Money, I am Neil Mardian.

For a further discussion around your investment and estate planning issues, contact Neil Mardian, M.Sc. (Mgmt) CFP at 403-504-3026 or neil.mardian@td.com

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